Bottom-feeding for blockbuster businesses

Marketing experts tell companies to analyze their customer portfolios and weed out buyer segments that don't generate attractive returns. Loyalty experts stress the need to aim retention programs at "good" customers--profitable ones- and encourage the "bad" ones to buy from competitors. And customer-relationship-management software provides ever more sophisticated ways to identify and eliminate poorly performing customers. On the surface, the movement to banish unprofitable customers seems reasonable. But writing off a customer relationship simply because it is currently unprofitable is at best rash and at worst counterproductive. Executives shouldn't be asking themselves, How can we shun unprofitable customers? They need to ask, How can we make money off the customers that everyone else is shunning? When you look at apparently unattractive segments through this lens, you often see opportunities to serve those segments in ways that fundamentally change customer economics. Consider Paychex, a payroll-processing company that built a nearly billion-dollar business by serving small companies. Established players had ignored these customers on the assumption that small companies couldn't afford the service. When founder Tom Golisano couldn't convince his bosses at Electronic Accounting Systems that they were missing a major opportunity, he started a company that now serves 390,000 U.S. customers, each employing around 14 people. In this article, the authors look closely at bottom-feeders--companies that assessed the needs of supposedly unattractive customers and redesigned their business models to turn a profit by fulfilling those needs. And they offer lessons other executives can use to do the same.     

The ultimately accountable job: leading today's sales organization

In recent years, sales leaders have had to devote considerable time and energy to establishing and maintaining disciplined processes. The thing is, many of them stop there--and they can't afford to, because the business environment has changed. Customers have gained power and gone global, channels have proliferated, more product companies are selling services, and many suppliers have begun providing a single point of contact for customers. Such changes require today's sales leaders to fill various new roles: Company leader. The best sales chiefs actively help formulate and execute company strategy, and they collaborate with all functions of the business to deliver value to customers. Customer champion. Customers want C-level relationships with suppliers in order to understand product strategy, look at offerings in advance, and participate in decisions made about future products--and sales leaders are in the best position to offer that kind of contact. Process guru. Although sales chiefs must look beyond the sales and customer processes they have honed over the past decade, they can't abandon them. The focus on process has become only more important as many organizations have begun bundling products and services to meet important customers' individual needs. Organization architect. Good sales leaders spend a lot of time evaluating and occasionally redesigning the sales organization's structure to ensure that it supports corporate strategy. Often, this involves finding the right balance between specialized and generalized sales roles. Course corrector. Sales leaders must watch the horizon, but they can't take their hands off the levers or forget about the dials. If they do, they might fail to respond when quick adjustments in priorities are needed.     

How to grow great leaders

Few leaders excel at both the unit and enterprise levels. More than ever, though, corporations need people capable of running business units, functions, or regions and focusing on broader company goals. It's up to organizations to develop leaders who can manage the inherent tensions between unit and enterprise priorities. Take the example of RBC Financial Group, one of the largest, most profitable companies in Canada. In the mid-1990's, RBC revamped its competitive strategy in a couple of ways. After the government announced that the Big Six banks in Canada could neither merge with nor acquire one another, RBC decided to grow through cross-border acquisitions. Additionally, because customers were starting to seek bundled products and services, RBC reached across its traditional stand-alone businesses to offer integrated solutions. These changes in strategy didn't elicit immediate companywide support. Instinctively, employees reacted against what would amount to a delicate balancing act: They would have to lift their focus out of their silos while continuing to meet unit goals. However, by communicating extensively with staff members, cross-fertilizing talent across unit boundaries, and targeting rewards to shape performance, RBC was able to cultivate rising leaders with the unit expertise and the enterprise vision to help the company fulfill its new aims. Growing such well-rounded leaders takes sustained effort because unit-enterprise tensions are quite real. Three common conditions reinforce these tensions. First, most organizational structures foster silo thinking and unimaginative career paths. Second, most companies lack venues for airing and resolving conflicts that arise when there are competing priorities. Third, many have misguided reward systems that pit unit performance against enterprise considerations. Such long-established patterns of organizational behavior are tough to break. Fortunately, as RBC discovered, people can be trained to think and work differently.     

Customer value propositions in business markets

Examples of consumer value propositions that resonate with customers are exceptionally difficult to find. When properly constructed, value propositions force suppliers to focus on what their offerings are really worth. Once companies become disciplined about understanding their customers, they can make smarter choices about where to allocate scarce resources. The authors illuminate the pitfalls of current approaches, then present a systematic method for developing value propositions that are meaningful to target customers and that focus suppliers' efforts on creating superior value. When managers construct a customer value proposition, they often simply list all the benefits their offering might deliver. But the relative simplicity of this all-benefits approach may have a major drawback: benefit assertion. In other words, managers may claim advantages for features their customers don't care about in the least. Other suppliers try to answer the question, Why should our firm purchase your offering instead of your competitor's? But without a detailed understanding of the customer's requirements and preferences, suppliers can end up stressing points of difference that deliver relatively little value to the target customer. The pitfall with this approach is value presumption: assuming that any favorable points of difference must be valuable for the customer. Drawing on the best practices of a handful of suppliers in business markets, the authors advocate a resonating focus approach. Suppliers can provide simple, yet powerfully captivating, consumer value propositions by making their offerings superior on the few elements that matter most to target customers, demonstrating and documenting the value of this superior performance, and communicating it in a way that conveys a sophisticated understanding of the customer's business priorities.     

Aligning incentives in supply chains

Most companies don't worry about the behavior of their supply chain partners. Instead, they expect the supply chain to work efficiently without interference, as if guided by Adam Smith's famed invisible hand. In their study of more than 50 supply networks, V.G. Narayanan and Ananth Raman found that companies often looked out for their own interests and ignored those of their network partners. Consequently, supply chains performed poorly. Those results aren't shocking when you consider that supply chains extend across several functions and many companies, each with its own priorities and goals. Yet all those functions and firms must pull in the same direction for a chain to deliver goods and services to consumers quickly and cost-effectively. According to the authors, a supply chain works well only if the risks, costs, and rewards of doing business are distributed fairly across the network. In fact, misaligned incentives are often the cause of excess inventory, stock-outs, incorrect forecasts, inadequate sales efforts, and even poor customer service. The fates of all supply chain partners are interlinked: If the firms work together to serve consumers, they will all win. However, they can do that only if incentives are aligned. Companies must acknowledge that the problem of incentive misalignment exists and then determine its root cause and align or redesign incentives. They can improve alignment by, for instance, adopting revenue-sharing contracts, using technology to track previously hidden information, or working with intermediaries to build trust among network partners. It's also important to periodically reassess incentives, because even top-performing networks find that changes in technology or business conditions alter the alignment of incentives.     

The customer has escaped

Every company makes choices about the channels it will use to go to market. Traditionally, the decision to sell through a discount superstore or a pricey boutique, for instance, was guided by customer demographics. A company would identify a target segment of buyers and go with the channel that could deliver them. It was a fair assumption that certain customer types were held captive by certain channels--if not from cradle to grave, then at least from initial consideration to purchase. The problem, the authors say, is that today's customers have become unfettered. As their channel options have proliferated, they've come to recognize that different channels serve their needs better at different points in the buying process. The result is "value poaching." For example, certain channels hope to use higher margin sales to cover the cost of providing expensive high-touch services. Potential customers use these channels to do research, then leap to a cheaper channel when it's time to buy. Customers now hunt for bargains more aggressively; they've become more sophisticated about how companies market to them; and they are better equipped with information and technology to make advantageous decisions. What does this mean for your go-to-market strategy? The authors urge companies to make a fundamental shift in mind-set toward designing for buyer behaviors, not customer segments. A company should design pathways across channels to help its customers get what they need at each stage of the buying process--through one channel or another. Customers are not mindful of channel boundaries--and you shouldn't be either. Instead, they are mindful of the value of individual components in your channels--and you should be, too.     

Turn customer input into innovation

It's difficult to find a company these days that doesn't strive to be customer-driven. Too bad, then, that most companies go about the process of listening to customers all wrong--so wrong, in fact, that they undermine innovation and, ultimately, the bottom line. What usually happens is this: Companies ask their customers what they want. Customers offer solutions in the form of products or services. Companies then deliver these tangibles, and customers just don't buy. The reason is simple--customers aren't expert or informed enough to come up with solutions. That's what your R&D team is for. Rather, customers should be asked only for outcomes--what they want a new product or service to do for them. The form the solutions take should be up to you, and you alone. Using Cordis Corporation as an example, this article describes, in fine detail, a series of effective steps for capturing, analyzing, and utilizing customer input. First come indepth interviews, in which a moderator works with customers to deconstruct a process or activity in order to unearth "desired outcomes." Addressing participants' comments one at a time, the moderator rephrases them to be both unambiguous and measurable. Once the interviews are complete, researchers then compile a comprehensive list of outcomes that participants rank in order of importance and degree to which they are satisfied by existing products. Finally, using a simple mathematical formula called the "opportunity calculation," researchers can learn the relative attractiveness of key opportunity areas. These data can be used to uncover opportunities for product development, to properly segment markets, and to conduct competitive analysis.     

Contextual marketing--the real business of the Internet

The painful truth is that the Internet has been a letdown for most companies--largely because the dominant model for Internet commerce, the destination Web site, doesn't suit the needs of those companies or their customers. Most consumer product companies don't provide enough value or dynamic information to induce customers to make the repeat visits--and disclose the detailed information--that make such sites profitable. In this article, David Kenny and John F. Marshall suggest that companies discard the notion that a Web site equals an Internet strategy. Instead of trying to create destinations that people will come to, companies need to use the power and reach of the Internet to deliver tailored messages and information to customers. Companies have to become what the authors call "contextual marketers." Delivering the most relevant information possible to consumers in the most timely manner possible will become feasible, the authors say, as access moves beyond the PC to shopping malls, retail stores, airports, bus stations, and even cars. The authors describe how the ubiquitous Internet will hasten the demise of the destination Web site--and open up scads of opportunities to reach customers through marketing "mobilemediaries," such as smart cards, e-wallets, and bar code scanners. The companies that master the complexity of the ubiquitous Internet will gain significant advantages: they'll gain greater intimacy with customers and target market segments more efficiently. The ones that don't will be dismissed as nuisances, the authors conclude. They suggest ways to become welcome additions--not unwelcome intrusions--to customers' lives.     

The customer knowledge journey

Customer relationship management (CRM) is the hot topic for many organisations at the moment. this could produce significant returns on investment and deliver the objective of a one-to-one relationship with customers, but it also puts a greater onus on companies to actually deliver their ‘brand promise’. For CRM to be sustainable it has to embed the learning from its relationships with customers within a clearly defined customer strategy and deliver tactics that fulfil that common goal of true CRM.     

Match your sales force structure to your business life cycle

Although companies devote considerable time and money to managing their sales forces, few focus much thought on how the structure of the sales force needs to change over the life cycle of a product or a business. However, the organization and goals of a sales operation have to evolve as businesses start up, grow, mature, and decline if a company wants to keep winning the race for customers. Specifically, firms must consider and alter four factors over time: the differing roles that internal salespeople and external selling partners should play, the size of the sales force, its degree of specialization, and how salespeople apportion their efforts among different customers, products, and activities. These variables are critical because they determine how quickly sales forces respond to market opportunities, they influence sales reps' performance, and they affect companies' revenues, costs, and profitability. In this article, the authors use timeseries data and cases to explain how, at each stage, firms can best tackle the relevant issues and get the most out of their sales forces. During start-up, smart companies focus on how big their sales staff should be and on whether they can depend upon selling partners. In the growth phase, they concentrate on getting the sales force's degree of specialization and size right. When businesses hit maturity, companies should better allocate existing resources and hire more general-purpose salespeople. Finally, as organizations go into decline, wise sales leaders reduce sales force size and use partners to keep the business afloat for as long as possible.     

The quest for customer focus

Companies have poured enormous amounts of money into customer relationship management, but in many cases the investment hasn't really paid off. That's because getting closer to customers isn't about building an information technology system. It's a learning journey-one that unfolds over four stages, requiring people and business units to coordinate in progressively more sophisticated ways. The journey begins with the creation of a companywide repository containing each interaction a customer has with the company, organized not by product, purchase, or location, but by customer. Communal coordination is what's called for at this stage, as each group contributes its information to the data pool separately from the others and then taps into it as needed. In the second stage, one-way serial coordination from centralized IT through analytical units and out to the operating units allows companies to go beyond just assembling data to drawing inferences. In stage three, companies shift their focus from past relationships to future behavior. Through symbiotic coordination, information flows back and forth between central analytic units and various organizational units like marketing, sales, and operations, as together they seek answers to questions like "How can we prevent customers from switching to a competitor?" and "Who would be most likely to buy a new product in the future"? In stage four, firms begin to move past discrete, formal initiatives and, through integral coordination, bring an increasingly sophisticated understanding oftheir customers to bear in all day-to-day operations. Skipping stages denies organizations the sure foundation they need to build a lasting customer-focused mind-set. Those that recognize this will invest their customer relationship dollars much more wisely-and will see their customer-focusing efforts pay offon the bottom line.     

Welcome to the experience economy

First there was agriculture, then manufactured goods, and eventually services. Each change represented a step up in economic value--a way for producers to distinguish their products from increasingly undifferentiated competitive offerings. Now, as services are in their turn becoming commoditized, companies are looking for the next higher value in an economic offering. Leading-edge companies are finding that it lies in staging experiences. To reach this higher level of competition, companies will have to learn how to design, sell, and deliver experiences that customers will readily pay for. An experience occurs when a company uses services as the stage--and goods as props--for engaging individuals in a way that creates a memorable event. And while experiences have always been at the heart of the entertainment business, any company stages an experience when it engages customers in a personal, memorable way. The lessons of pioneering experience providers, including the Walt Disney Company, can help companies learn how to compete in the experience economy. The authors offer five design principles that drive the creation of memorable experiences. First, create a consistent theme, one that resonates throughout the entire experience. Second, layer the theme with positive cues--for example, easy-to-follow signs. Third, eliminate negative cues, those visual or aural messages that distract or contradict the theme. Fourth, offer memorabilia that commemorate the experience for the user. Finally, engage all five senses--through sights, sounds, and so on--to heighten the experience and thus make it more memorable.     

Spark innovation through empathic design

Companies are used to bringing in customers to participate in focus groups, usability laboratories, and market research surveys in order to help in the development of new products and services. And for improving products that customers know well, those tools are highly sophisticated. For example, knowledgeable customers are adept at identifying the specific scent of leather they expect in a luxury vehicle or at helping to tune the sound of a motorcycle engine to just the timbre that evokes feelings of power. But to go beyond improvements to the familiar, companies need to identify and meet needs that customers may not yet recognize. To accomplish that task, a set of techniques called empathic design can help. Rather than bring the customers to the company, empathic design calls for company representatives to watch customers using products and services in the context of their own environments. By doing so, managers can often identify unexpected uses for their products, just as the product manager of a cooking oil did when he observed a neighbor spraying the oil on the blades of a lawn mower to reduce grass buildup. They can also uncover problems that customers don't mention in surveys, as the president of Nissan Design did when he watched a couple struggling to remove the backseat of a competitor's minivan in order to transport a couch. The five-step process Dorothy Leonard and Jeffrey Rayport describe in detail is a relatively low-cost, low-risk way to identify customer needs, and it has the potential to redirect a company's existing technological capabilities toward entirely new businesses.     

The four things a service business must get right

Many of the management tools and techniques used in service businesses were designed to tackle the challenges of product companies. Although they are valuable to service managers, they aren't sufficient for success. In this article, Harvard Business School's Frei explains why and urges companies to add some new ones to the mix. After years of extensive research and analysis, she offers an approach for crafting a profitable service business based on four critical elements: the design of the offering, employee management, customer management, and the funding mechanism. Just like a product that's going to market, a service needs to be compellingly designed, and management must field a workforce capable of producing it at an attractive price. Additionally, however, service firms must manage their customers, who do not simply use the service but also can be integral to its production: Because customers' involvement as producers can wreak havoc on costs, companies must also develop creative ways to fund their distinctive offerings, by providing a self-service alternative, for example, or by offsetting expenses with operational savings. A close look at successful service businesses--Wal-Mart, Commerce Bank, the Cleveland Clinic, and others--reveals that effective integration of the four elements is key. There is no "right" way to combine them; the appropriate design of one depends upon the other three. If managers don't get all four pulling together, they risk pulling the enterprise apart. Incumbents can fend off attacks from highly focused upstarts by becoming multifocused--that is, by pursuing multiple niches through optimized service models rather than trying to cover the entire waterfront with one model. Shared services within a firm (functions such as HR and finance) can help, since they will enable it to generate economies of scale and experience across models.     

Defeating feature fatigue

Consider a coffeemaker that offers 12 drink options, a car with more than 700 features on the dashboard, and a mouse pad that's also a clock, calculator, and FM radio. All are examples of "feature bloat", or "featuritis", the result of an almost irresistible temptation to load products with lots of bells and whistles. The problem is that the more features a product boasts, the harder it is to use. Manufacturers that increase a product's capability--the number of useful functions it can perform--at the expense of its usability are exposing their customers to feature fatigue. The authors have conducted three studies to gain a better understanding of how consumers weigh a product's capability relative to its usability. They found that even though consumers know that products with more features are harder to use, they initially choose high-feature models. They also pile on more features when given the chance to customize a product for their needs. Once consumers have actually worked with a product, however, usability starts to matter more to them than capability. For managers in consumer products companies, these findings present a dilemma: Should they maximize initial sales by designing high-feature models, which consumers consistently choose, or should they limit the number of features in order to enhance the lifetime value of their customers? The authors' analytical model guides companies toward a happy middle ground: maximizing the net present value of the typical customer's profit stream. The authors also advise companies to build simpler products, help consumers learn which products suit their needs, develop products that do one thing very well, and design market research in which consumers use actual products or prototypes.     

Don't homogenize, synchronize.

To be more responsive to customers, companies often break down organizational walls between their units--setting up all manner of cross-business and cross-functional task forces and working groups and promoting a "one-company" culture. But such attempts can backfire terribly by distracting business and functional units and by contaminating their strategies and processes. Fortunately, there's a better way, says the author. Rather than tear down organizational walls, a company can make them permeable to information. It can synchronize all its data on products, filtering the information through linked databases and applications and delivering it in a coordinated, meaningful form to customers. As a result, the organization can present a single, unified face to the customer--one that can change as market conditions warrant--without imposing homogeneity on its people. Such synchronization can lead not just to stronger customer relationships and more sales but also to greater operational efficiency. It allows a company, for example, to avoid the high costs of maintaining many different information systems with redundant data. The decoupling of product control from customer control in a synchronized company reflects a fundamental fact about business: While companies have to focus on creating great products, customers think in terms of the activities they perform and the benefits they seek. For companies, products are ends, but for customers, products are means. The disconnect between how customers think and how companies organize themselves is what leads to inefficiencies and missed opportunities, and that's exactly the problem that synchronization solves. Synchronized companies can get closer to customers, sustain product innovation, and improve operational efficiency--goals that have traditionally been very difficult to achieve simultaneously.     

Best face forward

Most companies serve customers through a broad array of interfaces, from retail sales clerks to Web sites to voice-response telephone systems. But while the typical company has an impressive interface collection, it doesn't have an interface system. That is, the whole set does not add up to the sum of its parts in its ability to provide service and build customer relationships. Too many people and too many machines operating with insufficient coordination (and often at cross-purposes) mean rising complexity, costs, and customer dissatisfaction. In a world where companies compete not on what they sell but on how they sell it, turning that liability into an asset is what separates winners from losers. In this adaptation of their forthcoming book by the same title, Jeffrey Rayport and Bernard Jaworski explain how companies must reengineer their customer interface systems for optimal efficiency and effectiveness. Part of that transformation, they observe, will involve a steady encroachment by machine interfaces into areas that have long been the sacred province of humans. Managers now have opportunities unprecedented in the history of business to use machines, not just people, to credibly manage their interactions with customers. Because people and machines each have their strengths and weaknesses, company executives must identify what people do best, what machines do best, and how to deploy them separately and together. Front-office reengineering subjects every current and potential service interface to an analysis of opportunities for substitution (using machines instead of people), complementarity (using a mix of machines and people), and displacement (using networks to shift physical locations of people and machines), with the twin objectives of compressing costs and driving top-line growth through increased customer value.     

寿险公司网络投诉案例实证研究

通过世纪保网3年549个寿险投诉案件,采用内容分析法揭示寿险业诚信问题的真正原因,研究发现引发消费者不满的三大问题依次为:销售误导、销售员隐瞒合同内容和退保问题,理赔难仅位列第四。结论表明,寿险业增进消费者信任最有效的手段是加强对销售人员的管理,杜绝销售误导和隐瞒,并就退保规定向消费者作出明确说明。研究还发现,相对于市场占有率而言,外资寿险公司的被投诉率比中资寿险公司还高。     

M&A needn't be a loser's game

Three out of four acquisitions fail; they destroy wealth for the buyer's shareholders, who end up worse off than they would have been had the deal not been done. But it doesn't have to be that way, argue the authors. In evaluating acquisitions, companies must look beyond the lure of profits the income statement promises and examine the balance sheet, where the company keeps track of capital. It's ignoring the balance sheet that causes so many acquisitions to destroy shareholders' wealth. Unfortunately, most executives focus only on sales and profits going up, never realizing that they've put in motion a plan to destroy their company's true profitability--its return on invested capital. M&A, like other aspects of running a company, works best when seen as a way to create shareholder value through customers. Some deals are sought to help create better value propositions for the business or to better execute current strategies--or to block competitors from doing these things. But most deals are about customers and should start with an analysis of customer profitability. Some customers are deliciously profitable; others are dismal money losers. The better an acquirer understands the profitability of its own customers, the better positioned it will be to perform such analyses on other companies. In this article, the authors show that customer profitability varies far more dramatically than most managers suspect. They also describe how to measure the profitability of customers. By understanding the economics of customer profitability, companies can avoid making deals that hurt their shareholders, they can identify surprising deals that do create wealth, and they can salvage deals that would otherwise be losers.     

Loyalty-based management

Despite a flurry of activities aimed at serving customers better, few companies have systematically revamped their operations with customer loyalty in mind. Instead, most have adopted improvement programs ad hoc, and paybacks haven't materialized. Building a highly loyal customer base must be integral to a company's basic business strategy. Loyalty leaders like MBNA credit cards are successful because they have designed their entire business systems around customer loyalty--a self-reinforcing system in which the company delivers superior value consistently and reinvents cash flows to find and keep high-quality customers and employees. The economic benefits of high customer loyalty are measurable. When a company consistently delivers superior value and wins customer loyalty, market share and revenues go up, and the cost of acquiring new customers goes down. The better economics mean the company can pay workers better, which sets off a whole chain of events. Increased pay boosts employee moral and commitment; as employees stay longer, their productivity goes up and training costs fall; employees' overall job satisfaction, combined with their experience, helps them serve customers better; and customers are then more inclined to stay loyal to the company. Finally, as the best customers and employees become part of the loyalty-based system, competitors are left to survive with less desirable customers and less talented employees. To compete on loyalty, a company must understand the relationships between customer retention and the other parts of the business--and be able to quantify the linkages between loyalty and profits. It involves rethinking and aligning four important aspects of the business: customers, product/service offering, employees, and measurement systems.